First things first: Pay off Debt or Save more

[1/7Suicide]

So I'm about 50k in debt no savings/emergency fund but do have some 401k, roughly $100K.
$16k (small business loan that I'm currently paying $1k a month toward and should be out in March of 2015)
$26k in vehicle
$1,500 in CC debt
$4,600 in personal loan

I'm married, 3 kids, single income.

I've always spent what I made thinking that as long as I was socking away some money for retirement it was ok. Well I found myself working to pay bills and blowing everything else as I made it. Recently I've realized how stressful this was to my wife and how NOT SECURE she felt without an emergency fund. We've decided to take control of our financial destiny, together, and do what is necessary to achieve financial freedom and hopefully retirement at a decent age. Because I'm from California and I'm a veteran, state college is covered.

My question is where should I start? Should I use what left over money I have each month ($300ish a month) and pay off debt or should I first save an emergency fund? My inclination is to have an emergency fund but that would take quite a while to build an emergency fund to cover my expense for 6-9 months ($20K-25k). I also think upping my 401k contributions would be better in the long run than paying down the debt. Just having a hard time figuring out a starting point.

[TheKayla]

You should build up some sort of emergency fund first, even if its for 1-2 months to start. Don't keep trying to go on with no emergency fund, because things will happen and you'll just keep building debt for any unexpected expenses. After that, pay off your debts.

Do you have a breakdown of your budget? Do you monthly expenses (described by your 6 month e-fund amount) include your debt payments? If not, I think it could be lowered, but I don't know your situation. Can you downgrade your housing/car, sell things, save money in others ways to free up more cash to put towards debt repayment? If you only have $300 at the end of each month that sure isn't a lot, and my guess is you could be living beyond your means.

[MonkeyMama]

Questions: How old are you and what is interest rates on loans? How much are you putting in your retirement monthly or annually?

I am generally a big believer in scaling back on the retirement to get everything else in order. Why? Because then you aren't pausing or lowering retirement contributions during rough times. Or worse - cashing retirement out to get by! When you get your ducks in a row, then retirement no longer gets sidetracked. (Of course, I only believe this if you are fairly young and only scaling back for a short time. A quick/temporary, "you won't be worse off in the long run" thing).

$300/month does not sound like a lot to bulk up an emergency fund. BUT, once you get the business debt paid off you can add $1,000/month. & you can snowball that on as you pay off the other debts. Then you are really getting somewhere.

Having some decent cash savings is really the only way to break the debt cycle. All that said, though you have some catching up to do on the cash side, $300/month is certainly not a bad start. Do you get large tax refunds? Any bonuses or anything to help move things along a little faster?

[kyoko]

Since you are married and have kids, I would definitely focus on building EF first.

As for the small business loan, do you have to pay $1000/mo??? Are you paying it off from the profit of your business or from your personal account? I am wondering if you could reduce this payment until at least you save up to cover one or two months expenses then get back on $1000 or $1300 if you have to pay it off by March 2015?

[bjl584]

Without knowing anything else I'd say that you should look into selling the car. What type of car is it? How much time is left on the loan? Do you know what the blue book is?

[1/7Suicide]

Wow lots of questions, so let me try and see if I can answer. The $300 ish left over monthly is after all the budgeted amounts toward bills and frills from groceries to pizza with the kids.

I'm 39 and I'm putting roughly $1K a month into retirement, part of which is being matched by my company. We have three vehicles two are paid off and one is my work truck. The work truck is a replacement of my old paid off truck. My old truck is not reliable enough. MAYBE IF I HAD AN EMERGENCY FUND I COULD HAVE BOUGHT ONE CASH

Based on the input it sounds like building the emergency fund is the best route to take, even if it's just a few months.

[bjl584]

Wow lots of questions, so let me try and see if I can answer. The $300 ish left over monthly is after all the budgeted amounts toward bills and frills from groceries to pizza with the kids.

I'm 39 and I'm putting roughly $1K a month into retirement, part of which is being matched by my company. We have three vehicles two are paid off and one is my work truck. The work truck is a replacement of my old paid off truck. My old truck is not reliable enough. MAYBE IF I HAD AN EMERGENCY FUND I COULD HAVE BOUGHT ONE CASH

Based on the input it sounds like building the emergency fund is the best route to take, even if it's just a few months.

If the old truck isn't reliable anymore why are you keeping it? I'd sell it. You will rid yourself the expense of owning it (gas, upkeep, insurance, etc.) and give yourself some cash that you could use to start an EF or pay down some debt.

[TheKayla]

Wow lots of questions, so let me try and see if I can answer. The $300 ish left over monthly is after all the budgeted amounts toward bills and frills from groceries to pizza with the kids.

I would at least give up on those frills and anything beyond your needs until you get at least that CC bill paid off and a base of an e-fund going. Then you should still look into way to increase/income decrease expenses to get the other debts taken care of faster. Most importantly, stop using the CC and going into debt at all!

[1/7Suicide]

If the old truck isn't reliable anymore why are you keeping it? I'd sell it. You will rid yourself the expense of owning it (gas, upkeep, insurance, etc.) and give yourself some cash that you could use to start an EF or pay down some debt.

The old truck is in a non-op status and I'm not paying insurance on it. It's not running very well and trying to sell it as is would be really hard in the short term. For now the only thing it is eating up is space in the driveway. The wife and I have been thinking about possibly keeping it for our oldest son who will be driving in 2 more years. Of course he'd have to earn it, and learn how to fix it.

I do have some other junk I could sell though. Maybe a yard sale is in order CHACHING! I'd get a lot more out of a yard sale than I would selling that truck lol.

[1/7Suicide]

I would at least give up on those frills and anything beyond your needs until you get at least that CC bill paid off and a base of an e-fund going. Then you should still look into way to increase/income decrease expenses to get the other debts taken care of faster. Most importantly, stop using the CC and going into debt at all!

Agreed, this is my problem. I'm justifying the little spends with "I'm saving for retirement." I'm no longer using my CC for anything so that's a start.

[asdf]

I also think upping my 401k contributions would be better in the long run than paying down the debt.

It's a tough question to answer without knowing what the interest rates are on the debts. Generally, the cutoff point is usually about 4-5%.

I agree with Kayla in that I'd like to see a breakdown of your monthly budget, including the rates and minimums on your debts. That may give us a bigger insight on what can be done.

[Augustine]

MAYBE IF I HAD AN EMERGENCY FUND I COULD HAVE BOUGHT ONE CASH

I would also go with building up an EF no matter how long it takes. However, I don't think it would be wise to spend it on buying a replacement of your old paid off truck, or any other vehicle given that you have two vehicles.

Before you can even build an EF, you have to be clear about your definition of an emergency.

[sroot19]

I would say a bit of saving (def emergency fund) and a bit of paying debt.

[snafu]

Welcome to SA, you've taken a giant step forward by realizing changes are needed to secure your family's finances going forward. 1st you need to prepare a hard copy of your current finances. I suggest starting with fixed expenses like mortgage. How much of the monthly payment goes to Principal, Interest, Taxes/Escrow. Interest rate & balance owed. What are Monthly utilities/phones/cells/cable/landscape/pool etc.? Transportation: loan balances, interest, monthly payment, operations, maintenance. Insurances: Life/house/vehicle. These may be intermittent so pro rate monthly. Food: groceries, take-out, restaurant. Credit cards: Balances, interest, monthly payments. Personal sums: grooming, misc., Gifts/ celebrations: how much can you identify/guesstimate from CCs or memories?

Loans: Balances, interest, monthly payments

If you are willing, it's very helpful to add up interest paid on each CC, Loan from information available.

If you are willing to share your cash flow, the experienced responders will have facts for thought out suggestions. You may need some short term changes for long term financial security.

[dojo]

I've had debt and no emergency fund and it bit me pretty hard. So I'd also chime in and say it's healthy to have a bit of money for any emergencies and then go crazy on the debt payment